Detroit Ignores Its Dealers At Its Peril

[BigPontiac]

JULY 18, 2006

Insight

By Ed Wallace

Detroit Ignores Its Dealers At Its Peril

Heavy discounting and added costs by U.S. automakers are bleeding its dealer bodies

Most auto industry observers think they know what is wrong with Detroit. As General Motors weighs a possible alliance with Renault and Nissan, and Ford hands out the pink slips and slashes its dividends, the Greek chorus of critics has its favorite targets of what to fix first: expensive labor contracts, poor understanding of the market, mediocre designs and quality, resistance to hybrid technology and an ossified bureaucracy that is out of touch with reality.

Yet, the sharp-eyed will have noticed that progress is being made in all these areas. Labor contracts are being renegotiated, Ford (F), General Motors (GM) and DaimlerChrysler's (DCX) Chrysler division are coming out with some of their best cars ever, hybrids and alternate fuel vehicles are being fast-tracked, and management is being shook up.

But there is one fundamental problem that is largely ignored—and unaddressed: Detroit's manufacturers are slowly killing their dealer bodies.

It's ominously like the way they managed to bankrupt so many of their automotive parts suppliers. Why is this so important? Well, if your parts supplier goes out of business, there are always others who want your business, usually from cheaper overseas manufacturers. But when you bleed the financial life out of your dealers, who's going to sell your automobiles?

Article continued

Full URL: http://yahoo.businessweek.com/autos/conten...0718_780276.htm

Edited July 19, 2006 by BigPontiac

[CARBIZ]

Interesting article. Frankly, there is so many things wrong with the way the dealer body is set up that to try and fix the problem would make a GM-Nissan merger look like a picnic.

1. WHY SHOULDN'T ALL VEHICLES OF THE SAME MODEL BE SOLD FOR THE SAME

PRICE?

This one makes sense to me, but as market share drops, dealers are only too eager to cut each other's throat. Some customers just love to haggle, but wouldn't recognize a deal if it bit them! For some stupid reason, consumers groups will sue a dealer body if they do try to maintain prices at a certain level.

2. It is true that most dealers are losing money these days. I was told that less than half of the GM dealers in the Toronto area are making money; that only two Chrysler stores are making money.

3. Consumers have become jaded about discounts. If we knock $1,000 off the price of a demonstrator, they are unmoved.

4. Customers lie/salesmen lie. That is a big mess. When a customer tells you they will be back after lunch, then go straight to another dealer and buy the vehicle for $5 a month less from a friend of yours and he calls you to thank you for the deal - well, that environment isn't conducive to good customer relations.

If market share is down by half, then it only stands to reason that half the dealers need to go. Until that happens, dealers will continue to be desperate, customers will sense that blood is in the water and it will be a spiral downward. Then Toyota can step in, take the best locations, the best dealers, thus speeding GM and Ford's demise.

OH, IMO, IT DOESN'T HELP THAT MANY DEALERS OWN MORE THAN ONE MAKE. THAT CREATES HUGE CONFLICTS OF INTEREST AND DISLOYALTY, IF YOU ASK ME.